GM Building sale may calm property investor nerves

By Ilaina Jonas

NEW YORK, May 28 (Reuters) - The U.S. commercial real estate market should be relieved by the sale of New York's GM Building, signaling that tight credit markets and fewer buyers may make deals difficult but do not spell doom for the sector, real estate research firm Reis said on Wednesday.

Boston Properties Inc BXP.N said on Saturday it would join one or more financial partners to buy the General Motors Building and three other Manhattan skyscrapers for about $4 billion. The $2.8 billion price for the 2 million-square-foot (186,000-square-meter) GM Building is a record for a U.S. office building, and twice what Harry Macklowe paid in 2003.

Boston Property will ultimately own 49 percent of the GM Building and tax agreements restrict the sale of the property for up to nine years, the company said in a regulatory filing on Wednesday. The GM Building sale is set to close in July.

The price represents about a 16 percent annual compound appreciation for Macklowe, and translates into a 4.6 percent first-year yield for the new buyers, Reis said.

Macklowe was forced to sell the highly desirable property to repay loans on seven other properties he bought last year. The sale cannot be translated into a direct outlook for most of the U.S. office market, as the building is unique, Reis said.

"(But) the capacity of the market and its participants to reach this deal in spite of current credit condition will have a modestly restorative impact on confidence levels and overall transaction activity in the largest office market," Reis Chief Economist Sam Chandan said on a conference call.

The deal follows a subdued first quarter, when U.S. sales of office, retail, industrial and apartment buildings totaled $42.6 billion, down 40 percent from the year-earlier quarter.

Tight credit and the end of ever-increasing valuations have driven out buyers. Plus, the commercial mortgage-backed securities market, which helped finance many property portfolio deals in the past several years, has slowed to a trickle. Reis predicts new CMBS issues will be between $32 billion and $35 billion in 2008, down from $230 billion in 2007.